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Thailand government subsidy kills rice sales

After three decades of being the world’s top rice exporter, Thailand lost the title in 2012 because of government interference in free trade with its election promise of establishing a populist subsidy program.

Thailand at 6.9 million tonnes of exports fell behind Vietnam and its 7.6 million tonnes and India with its 9.5 million tonnes, according to U.S. Department of Agriculture numbers quoted by the Bangkok News newspaper.

The government of Thailand is involved in demanding $100 to $200 a tonne more than what other countries charge for its rice, according to the Thai Rice Exporters Association; therefore, Thai rice is being bought second to lower priced rice sources. Quality is the main point being used to sell Thai rice.

Thailand’s rice exports were down 35.5 percent from the 10.7 million tonnes it shipped in 2011, as noted by the Thai Rice Exporters Association and the Commerce Ministry.

The exporters' association blamed the country's drop in exports on the government's “paddy pledging scheme,” which has the government buying unhusked white rice from farmers at a fixed price of 15,000 baht (US$484) per tonne and high-quality jasmine rice at 20,000 baht per tonne.

The subsidy to prop up the income of rice farmers is costing the country/government billions of dollars and will reach double digit billions in 2013 based on calculations of reported rice sales, rice supply and the baht’s value.

The scheme is “one of the ruling Pheu Thai Party's populist policies used to win the July 2011 general election. The government has said it will continue the scheme throughout 2013 because it benefits farmers,” reported the Bangkok News.

Since it started the scheme in October 2011, the government has stockpiled more than 10 million tonnes of rice. Of the 6.9 million tonnes of total exports, about 1.7 million were registered as government-to-government transactions, which the private-sector association claims are unsubstantiated sales.

“The World Bank last month estimated that Thailand would lose 115 billion baht on last year's stockpiled rice if it was forced to sell at today's prices,” the newspaper reported, and projections are for the average world price of rice to fall $60 per ton to about $520 per tonne in 2013.